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ilMES'  IVIAI^UA 


OPENiiaC  Alio  OLOSi^O 


THE  BOOK 


INT  Stock  Companie 


,  J.  OAR  ME 


^^^ 


Digitized  by  the  Internet  Archive 
in  2007  with  funding  from  , 
IVIicrosoft  Corporation 


http://www.archive.org/details/carnesmanualonopOOcarnrich 


A.  J.  Carnes'  Manual 


ON 


OPENING  AND  CLOSING 


THE 


Books  of  Joint  Stock  Companies. 


A  Work  Designed  for  Experienced  Book-Keepers. 


ELLtrSTRATINO  THE 
VAKIOUS  METHODS  OF  OPENING  THE 
BOOKS  OF  JOINT  STOCK  COMPANIES,  WHOSE  ORGANIZA- 
TIONS ARE  PECXn.IAR,  TREATING  WITH  NOMTNAL  AND  FICTITIOUS 
VAIiTJES ;     THEIR     DISPOSITION     AND     THEIR     USES ;     HOW    AND    WHEN     THEY 
SHOULD  BE  USED,  ETC.  :   EMBRACING  PRACTICAL  INFORMATION  TO 
THOSE  BOOK-KEEPERS  WHOSE  EDUCATION   HAS  BEEN 
WITHIN  THE  CONFINES  OF  THE  COMMON 
COMMERCIAIi  COUNTING-ROOM. 


PRICE,    $3.00. 


THIRD    EIDITION, 

BALTIMORE,   MD. 
1891. 


or  THE     '^ 

^N/V£Rs/Ty 


Copyright,  1884,  by  A.  J.  Carnes. 


SPRECKELS 

JOHX  MURPHY  &  CO.,  PRINTERS, 
BALTIMORE. 


//'  '^ 


T®  U^J  Kell0y5=fe2?(a|fsir)cr). 


The  nature  of  Joint  Stock  Concerns  in  their  organization  is  varied 
and  often  peculiar,  owing  to  which  the  opening  entries  at  the  com- 
mencement of  business  must  necessarily  differ,  and  from  this  fact 
difficulties  arise  that  are  not  met  with  in  common  commercial  book- 
keeping. Having  been  so  frequently  consulted  upon  the  subject  of 
opening  and  closing  the  books  of  Joint  Stock  Companies  by  intelligent 
book-keepers,  I  am  led  to  imagine  a  few  practical  suggestions  upon 
the  matter  may  be  of  much  value. 

To  open  the  books  for  a  simple  partnership  or  a  mercantile  business, 
we  only  have  to  deal  with  positive  values,  whilst  on  opening  the  books 
for  a  compound  partnership  or  a'  Joint  Stock  Company  we  are  com- 
pelled to  resort  to  values  of  another  kind,  namely,  positive,  nominal, 
and  fictitious,  and  it  is  in  the  creation  and  disposition  of  these  nominal 
and  fictitious  values  that  difficulties  seem  to  arise: 

The  knowledge  I  have  acquired  upon  the  matter  of  compound 
partnerships  has  been  from  observation  and  study,  coupled  with  a 
varied  practical  experience  covering  the  better  portion  of  my  lifej  and 
I  feel  confident  the  various  entries  I  shall  here  illustrate  will  assist  the 
intelligent  book-keeper,  and  go  far  to  aid  him  in  the  disposition  of  all 
transactions  to  be  encountered  in  the  formation  of  a  Joint  Stock 
Company,  no  matter  how  complicated  its  organization  may  be. 

I  do  not  propose,  even  were  I  capable,  to  devote  any  of  the  pages 
of  this  little  work  to  defining  the  law  regulating  Stock  Concerns. 
That  question  I  refer  to  some  proper  attorney,  who  should  beyond 
question  be  consulted  upon  the  first  move  looking  toward  any  organ- 
ization governed  in  the  main  by  legal  enactments.  Nor  shall  I,  like 
some  authors,  sacrifice  golden  hours,  and  exhaust  the  greater  portion 
of  my  space  in  setting  forth  how  articles  of  incorporation  and  other 
instruments  of  writing  necessary  to  the  formation  of  a  Company 
should  be  executed.  Neither  shall  its  pages  be  encumbered  with  an 
exemplification  of  the  minute  book,  or  only  a  detail  of  the  formula 
required  to  open  the  books  for  a  Company  that  is  to  be  blessed  with 
a  cash,  paid-up  capital. 

3 


4  TO  MY  FELLOW-CRAFTSMEN. 

My  purpose  here  is  not  to  theorize  or  to  make  book-keepers,  but 
to  deal,  as  it  were,  in  "  cold  facts  "  with  book-keepers  already  made. 
As  it  is  to  the  intelligent  who  engage  in  the  calling  I  appeal,  I  have 
no  fears  but  that  they  will  appreciate  the  many  repetitions  I  purposely 
offer,  as  well  as  being  capable  of  reasoning  out  the  many  seeming 
inconsistencies  of  my  illustrations.  Sad,  indeed,  must  be  the  capacity 
of  the  book-keeper  who  is  destitute  of  the  ability  to  record  the  minutes 
of  a  "meeting,"  should  that  duty  devolve  upon  him.  While  any 
first-class  stationer  can  furnish  books  out  of  the  ordinary  run,  such  as 
Certificate  Stock  Book,  Installment  Book,  Subscription  Book,  and  the 
Stock  Ledger,  the  forms  and  headings  of  which  are  all  suggestive  as 
to  the  disposition  to  be  made  of  them.  And  the  book-keeper  who  is 
lacking  in  genius  to  open  a  set  of  books  for  a  Company  which  is  to 
have  a  paid-up  cash  capital,  certainly  is  not  the  person  to  be  trusted 
to  keep  the  accounts  of  a  Joint  Stock  Concern. 

All  companies  do  not  enjoy  the  advantage  of  having  a  paid-up 
cash  capital.  Some  are  obliged  to  operate  upon  a  great  deal  less  than 
their  incorporated  capital,  while  the  capital  of  some  may  be  conducted 
"  all  on  paper,"  and  sometimes  "  otherwise."  As  a  sample,  two  or 
more  mercantile  firms  may  consolidate.  Upon  these  the  foundation  of 
a  Joint  Stock  Concern  is  based,  the  members  of  which  are  to  receive 
more  or  less  Stock  in  return  for  the  amount  of  net  assets  and  other 
considerations  they  contribute.  These  two  mercantile  branches  will 
say  to  the  Company.  "  We  donate  you  our  assets ;  now  take  care  of 
our  liabilities."  While  each  will  say,  "  My  interest  in  the  old  business 
was  worth  so  much ;  give  me  Stock  equal  or  in  greater  proportion  to 
that  interest." 

Again,  it  frequently  happens  a  large  mercantile  business  incor- 
porates into  a  Stock  Company,  the  heads  of  which  will  donate  a  few 
shares  to  some  few  faithful  employes,  and  divide  the  balance  of  Stock 
among  themselves.  These  and  many  other  transactions,  too  varied  to 
mention,  go  to  make  up  a  class,  whose  affairs  are  not  so  simple  to 
dispose  of  upon  the  books  as  they  would  be  upon  a  cash  basis.  And 
it  is  to  meet  the  many  peculiarities  that  form  these,  I  aim  to  contri- 
bute light,  and  I  trust  I  shall  succeed  in  assisting  those  who  have  only 
traveled  in  the  straight  rut  of  keeping  accounts  for  a  commercial 
business. 

Trusting  my  readers  may  not  accuse  me  of  disparaging  the  merits 
of  other  works  upon  this  subject,  I  remain. 

Sincerely  yours,  A.  J.  C. 


CONTENTS 


To  My  Fellow-Craftsmen Pages  3-4 

Proposition  I. 

Various  Methods  for  Opening  the  Books  for  a  Company  whose  Whole 
Xumber  of  Shares  are  Divided  among  the  Incorporators,  with  Practical 
lUustration, Pages   7-11 

Closing  the  Books, "     11-12 

Dividends, "  12 

Stock  Ledger, "     13-15 

Proposition  II. 

Opening  the  Books  for  a  Company  where  the  Majority  of  Stock  [Par  Valne 
$100]  is  Divided  among  the  Incorporators  and  Associates  at  $10.00  per 
Share,  the  Balance  of  Stock  Eeserved  for  a  Working  Capital. — Company 
Contract  to  Pay  Part  in  Cash  and  Part  in  Stock  for  Machinery  or  Keal 
£gtate. — Money  Borrowed  to  Pay  Dividends. — Dividends  Declared  and 
Paid  in  Stocks. — Reserved  Shares  Sold  at  Par. — Reserved  Shares  Sold 
Above  and  Below  Par, Pages  16-21 

Proposition  III. 

Various  Methods  for  Opening  the  Books  for  a  Commercial  Business  Incor- 
porated into  a  Stock  Company. — The  Members  of  the  Old  Firm  Divide 
the  Majority  of  Stock  among  Themselves  in  Proportion  to  their  Interest 
in  the  Old  Business. — The  Balance  of"  Stock  sold  to  Outside  Parties. — 
Street  Railways, Pages  21-25 

Proposition  IV  (A). 

Opening  the  Books  for  a  Commercial  Business  Incorporated  into  a  Stock 
Company  with  a  Capital  of  $50,000.00,  having  Speculative  Assets  Valued 
at  $20,000.00,  with  no  Liabilities. — Incorporators  Divide  the  Majority  of 
Stock  among  Themselves,  the  Balance  of  Stock  to  be  sold  for  a  Working 
Capital, .'      .     Page  26 

Proposition  IV  (B). 

Opening  the  Books  for  a  Commercial  Business  Incorporated  into  a  Joint 
Stock  Company  with   an  Incorporated  Capital  of  $50,000.00,  with  Spec- 

5 


6  CONTENTS. 

ulative  Assets  Valued  at  $20,000.00,  and  Machinery  Invoiced  at  |10,- 
000.00  (no  Liabilities). — The  Majority  of  Stock  divided  among  the  Incor- 
porators, and  the  Balance  of  Stock  reserved  to  be  sold  for  a  Working 
Capital, Page  26 

Proposition  V. 

Various  Methods  of  Opening  the  Books  of  a  Company  to  be  Incorporated  on 
the  Basis  of  a  Patent-right,  for  which  the  Owner  is  to  Receive  $5,000.00 
in  Paid-up  Stock. — The  Incorporators  Subscribe  for  a  Certain  Number  of 
Shares,  Leaving  the  Balance  of  Stock  to  be  Sold  for  Operating  Pur- 
poses,         Pages  27-29 

Proposition  VI. 

A  Party  of  Gentlemen  Pay  the  owner  of  a  Piece  of  Land  $10,000.00  for  his 
own  Use,  with  the  Understanding  he  is  to  Deed  the  Land  for  the  Purpose 
of  Organizing  a  Joint  Stock  Company ;  he,  the  Owner,  to  be  One  of  the 
Incorporators,  they  to  Divide  the  Controlling  Stock  among  Themselves, 
the  Balance  of  Stock  to  be  Sold  for  Working  Capital,       .        .    Page  29 

Proposition  VII. 

A  Gentleman  Donates  a  Piece  of  Land  to  Incorporate  a  Company  for  the 
Purpose  of  Developing  a  Supposed  Product ;  the  Company  is  to  Receive 
$10,000.00  to  be  Applied  for  Operating;  those  who  Pay  the  Money,  to- 
gether with  the  Original  Owner,  are  to  be  the  Incorporators,  the  Original 
Owner  to  Receive  the  Majority  of  Shares,  the  Others  to  Receive  an 
Agreed  Number  of  Shares ;  the  Balance  of  Shares  to  be  Sold  for  W^ork- 
ing  Capital, Page  30 

Proposition  VIII. 

Opening  Books  for  the  Consolidation  of  Railroad  Companies  Having  Large 
Floating  Debts  and  Worthless  Stock,  Etc.,  Etc. — Consolidation  of  Com- 
mercial Firms,  Etc., Pages  30-33 

Proposition  IX. 

A  Company,  whose  Shares  were  Originally  Divided  among  the  Incorporators 
and  Associates,  Subsequently  Donate  a  Portion  of  their  Stock  Back  to 
the  Company  to  be  Sold  for  Operating  Purposes,        .        .     Pages  33-34 

Reserve  Fu»d  akd  its  Meaning, "     34-35 

Balance  Sheet,  1  and  2, "  36 

MiSCELIiANEOUS, .  .  "       37-42 


Carnes'    Manual 

ON  OPENING  AND  CLOSING 

Books  of  Joint  Stock  Companies. 


PROPOSITION    I. 

Organization  of  a  Joint  Stock  Company.-Capital,  $100,000.00. 
1,000  Shares,  Par  value,  $100.— Manufacturing  Steel  Rails. 
Incorporators  agree  to  divide  all  the  Stock  among  them- 
selves, each  to  pay  full  par  value  per  Share. 

Journal  Entry.— Example  i. 
FBANcmsE, S100,000.00 

For  amount  of  the  nominal  value  of  the  fran- 
chise of  the  Ohio  Steel  Eail  Manufacturing 
Company,  together  with  all  rights,  titles,  4 

and  privileges,  organized  upon  the  basis  of 
$100,000.00  Capital  Stock,  divided  into  1,000 
shares  of  the  nominal  par  value  of  $100 
each,  as  per  Articles  of  Incorporation, 
dated  December  26,  1883. 

To  Capital  Stock,    ....        $100,000.00 

For  amount  of  1,000  shares  of  the  par  value 
of  $100,  divided  among  and  issued  to  the 
incorporators  and  associates,  as  follows : 

John  Brown,     .       .       .  300  shares. 

W.  Doe,         ...  200      " 

P.Smith,  ...  100      « 

H.  Blake,       ...  350      " 
A.  J.  Carnes,    ...      50      " 


1,000      " 
as  per  Stock  Ledger. 

Debit  Franchise,  and  Credit  Capital  Stock  Account,  which  two 
accounts  should  remain  open,  one  carried  as  an  Asset,  the  other  as  a 

7 


8  CARNES'  MANUAL  FOB  OPENING  AND  CLOSING 

Liability  Account.  Under  the  above  agreement  the  Capital  Stock 
appears  to  be  or  will  be  paid  up.  That  account,  therefore,  should  be 
left  undisturbed.  The  Capital  Stock  Account  must  not  be  affected 
unless  by  an  act  of  the  Board  of  Directors,  the  capital  of  the  Company 
be  increased  or  decreased,  which  act,  however,  must  be  in  conformity 
with  the  law  of  the  State  in  which  the  Company  is  located. 

As  the  subscribers  pay  for  their  shares  in  whole  or  m  party  issue 
them  their  stock,  and  enter  into  the  Cash  Book,  as  follows : 


AJi  Example  2. 

"To  Contingencies." 

Received  of  John  Brotun,  in  full  for  his  300  shares^  $30,000.00. 

As  to  the  above  Cash  Book  entry,  the  title  of  "Contingencies"  is 
used.  This  is  a  fictitious  creation,  and,  therefore,  has  no  value;  but 
may  with  propriety  be  used  fictitiously,  either  as  an.  asset  or  a  liability, 
when  necessary  to  get  a  real  account  upon  the  books.  The  experi- 
enced accountant,  with  little  reasoning,  will  readily  see  an  account 
of  this  character  can  do  no  violation.  It  does  not  affect  the  gains  or 
losses;  neither  is  it  a  liability  to  be  paid.  "To  installments''  would 
answer,  however,  in  the  place  of  "Contingencies"  when  payments  are 
made  in  that  way — in  which  case  "  Installments "  would  be  credited 
and  carried  (the  same  as  "Contingencies")  as  a  liability  account. 
(See  Example  10.)  ' 

In  this  case  open  an  account  with  "  Co?i^m^encies ;"  credit  that, 
and  debit  cash.  If  the  Company  has  been  organized  upon  the  fore- 
going basis,  the  above  entries  will  open  the  books.  After  which,  and 
in  all  cases,  proceed  as  in  any  ordinary  book-keeping. 

Some  accountants  would  in  this  case  feel  justified  in  opening  an 
account  with  each  stockholder  (see  Stock  Ledger).  They  would  argue, 
Mr.  Blank  is  really  a  debtor  to  the  Company  as  soon  as  he  becomes  a 
subscriber.  Whilst  this  is  so,  I  fail  to  see  how  a  claim  for  delinquency 
on  the  part  of  Mr.  Blank  could  any  the  more  readily  be  substantiated 
by  having  him  charged  upon  the  Ledger.  The  fact  is,  the  subscrip- 
tion book  shows  Mr.  Blank  has  subscribed  for  a  certain  number  of 
shares.  That  act  lays  him  liable  to  lawful  action  should  he  refuse  or 
neglect  to  pay  for  the  same. 

Again,  the  incorporators  of  many  corporations  contribute  a  piece 
of  land,  or  a  patent,  or  "something  else,"  which  forms  the  basis  of 


BOOKS  OF  JOINT  STOCK  COMPANIES.  9 

their  Company ;  they,  in  consideration  of  this  contribution,  generally 
divide  the  voting  shares  among  themselves,  who  never  contemplate 
paying  in  one  dollar,  their  aim  being  to  make  the  Reserved  Stock 
furnish  money  for  operating  purposes;  in  cases  of  this,  and  many 
similar  kinds,  it  would  not  be  a  matter  so  easy  to  open  an  account 
with  the  Subscribers  or  Stockholders.  But  in  this  case,  should  the 
Company,  after  it  has  been  operating,  be  compelled  to  tax  the  share- 
holders for  an  installment  or  an  assessment,  an  entry  in  the  Journal, 
^^Stockholders  To  Assessment"  would  then  be  in  order;  but  the  matter 
of  charging  Stockholders  and  crediting  Capital  Stock  is  not  so  plain 
unless  all  the  stock  is  sold  for,  or  prospectively  sold  for,  cash  ;  but,  as 
I  have  said,  all  companies  have  not  that  advantage.  The  following  is 
the  method  alluded  to  : 

Journal  Entry.— Example  3. 

Stockholders, $100,000.00 

To  Capital  Stock,     ....       $100,000.00 

For  amount  of  the  Capital  Stock  of  the  Ohio 
Steel  Rail  Manufacturing  Company,  incor- 
porated upon  the  basis  of  $100,000.00  Cap- 
ital Stock,  divided  into  1,000  shares  of  the 
nominal  par  value  of  $100,  issued  to  the 
incorporators  and  associates,  as  follows : 


John  Brown, 
W.  Doe,     . 
P.  Smith,        , 
W.  Blake, 
A.  J.  Carnes, 

.     300  shares. 

200  " 
.     100      " 

350  " 
.      50      " 

as  per  Stock  Ledger. 

1,000      " 

Debit  Stockholders  and  credit  Capital  Stock.  The  above  entry 
may  be  made  upon  the  ground  that  the  incorporators  have  agreed  to 
take  all  the  stock  at  its  par  value,  and  are  therefore  debtors ;  but  sup- 
pose it  was  found  in  the  course  of  operating  that,  after  fifty  per  cent, 
having  been  paid  in,  no  more  cash  was  needed,  here  you  would  have 
the  account  of  Stockholders  (or  if  an  account  had  been  opened  with  each 
Subscriber)  owing  a  balance,  the  Company  having  declared  no  further 
installments  or  assessments  would  be  necessary,  it  certainly  would  be 
wrong  in  effect  and  principle  for  an  account  having  the  appearance  of 


10  CARNES'  MANUAL  FOB  OPENING  AND  CLOSING 

a  real  Debtor  to  remain  in  that  condition ;  under  such  circumstances 
I  should  close  the  account  "  Contingencies  To  Stockholders.^^  If,  after 
this  operation,  the  Company  should  find  itself  obliged  to  make  another 
"  Call,"  open  an  account  in  the  Journal "  Stockholders  To  Contingencies," 
this  latter  operation  will  open  the  Stockholders'  account,  to  be  closed 
when  the  assessment  is  paid. 

Upon  the  same  principle  some  accountants  open  the  books  by 
debiting  Cash  and  crediting  Capital  Stock  as  installments  are  paid  in. 
(See  Stock  Ledger.)  If,  as  it  appears  to  be  in  the  case  of  the  Ohio 
Steel  Rail  Manufacturing  Company,  1,000  shares  have  been  divided 
among  the  incorporators  and  others,  this  method  would  give  Capital 
Stock  account  a  credit  of  $25,000.00  on  a  call  of  twenty-five  per  cent., 
while  $100,000.00,  the  nominal  par  value  of  1,000  shares,  would  have 
been  issued.  The  face,  value  of  1,000  shares  represent  the  incorpor- 
ated Capital,  therefore,  should  a  call  of  twenty-five  per  cent,  be  made, 
and  no  more,  or  should  the  shares  be  sold  above  or  below  par,  the  Capital 
Stock  Account  is  entitled  to  have  credit  for  the  full  face  value  of  1,000 
shares,  i.  e.  $100,000.00. 

When  a  member  of  a  body  corporate  w^ho  has  subscribed  for 
Stock  with  the  understanding  he  was  to  pay  its  full  par  value,  and 
then  finds  himself  let  off"  with  fifty  per  cent.,  certainly  claims  and  does 
receive  dividends  on  the  full  face  value  of  each  share  held  by  him,  and 
he  has  the  same  claim  if  he  buys  Stock  at  a  discount,  and  no  greater 
claim  if  he  buys  Stock  above  par. 

Or  this  entry : 

Journal  Entry.— Example  4. 

Contingencies,        .        .        .        .        .    $100,000.00 

(History.) 

To  Capital  Stock,    .        ...        .        $100,000.00 

(History.) 

If  the  Shareholders  pay  by  installments  or  otherwise,  debit  Cash 
and  credit  "  Contingencies ;  "  when  all  are  paid  in,  the  latter  account 
will  close.  Should  it  be  found  that  fifty  per  cent,  was  sufficient,  then 
carry  what  remains  of  Contingency  as  an  Asset  until  closed  by  future 
installments,  should  any  be  called  for.  But  as  the  incorporators  and 
associates  agreed  to  take  all  the  stock  at  its  par  value,  the  "  Capital 
Stock"  account  must,  upon  the  issue  of  the  stock,  receive  credit  for  the  full 


BOOKS  OF  JOINT  STOCK  COMPANIES.  11 

face  value  of  shares  issued.  It  is  hardly  sufficient  to  credit  that  account 
for  only  the  per  cent  paid  in,  ivhen  the  stock  is  issued.  (See  Stock 
Ledger.)  In  the  above  case  Contingency  balance  would  be  carried  as 
an  Asset,  while  the  same  account  in  the  Cash  Book  (Example  2) 
would  be  carried  as  a  Liability. 

The  following  method  may  be  preferred  : 

Journal  Entry.— Example  5. 

Certificates  of  Stock,        .        .        $100,000.00 

To  Capital  Stock,    ....        8100,000.00 

For  amount  of  the  Capital  Stock  of  the  Ohio 
Steel  Rail  Manufacturing  Company,  organ- 
ized upon  the  basis  of  $100,000.00  Capital 
Stock,  divided  in  1,000  shares  of  the  nom- 
inal par  value  of  $100  each,  appropriated 
to  the  .incorporators  and  associates,  as 
follows : 

(Names  of  incorporators,  see  Example  3.) 

As  cash  is  received  from  the  Subscribers  debit  Cash  and  credit 
Certificate  of  Stock  account.  Should  the  Company  conclude  that  fifly 
per  cent,  is  sufficient,  after  having  calculated  on  receiving  the  full 
value  of  the  stock,  I  should,  like  in  the  preceding  example,  close  Cer- 
tificate of  Stock  account,  "By  Contingencies."  There  would  be  no 
impropriety  in  carrying  the  balance  of  Certificate  of  Stock  account,  if 
that  balance  really  represented  stock  unsold. 

Closing  the    Books. 

In  all  cases  close  into  Profit  and  Loss  the  several  accounts  that 
belong  there.  Should  that  account  show  a  gain  or  balance,  say 
85,000.00,  close  the  account  as  follows : 

Journal  Entry.— Example  6. 

Profit  and  Loss, 85,000.00 

To  Surplus, $5,000.00 

For  amount  of  net  gain,  as  appears  hy  the 
Profit  and  Loss  Account  for  the  quarter 
ending  March  31,  1884. 


12  CABNES'  MANUAL  FOR  OPENING  AND  CLOSING 

Open  an  account  with  surplus.  Credit  that  and  debit  Profit  and 
Loss,  which  operation  will  close  that  account.  In  preparing  the  Bal- 
ance Sheet  for  the  inspection  of  the  Board  of  Directors,  I  think  it 
best  to  close  the  Sheet  "  To  Net  Gain/'  as  it  may  probably  be  better 
understood  by  those  not  skilled  in  accounts.  But  when  you  close 
your  books  use  the  title  of  Surplus.  This  account  or  its  balance  to  be 
carried  as  a  liability ;  but  it  must  not  operate  for  or  against  the  gains 
of  a  subsequent  quarter. 

Some  book-keepers  prefer  to  carry  the  balance  of  "Profit  and 
Loss,"  instead  of  "  Surplus,"  as  a  proprietary  Liability.  They  contend 
(and  I  think  the  point  well  taken)  that  "  Profit  and  Loss "  is  easily 
understood.  Many  get  it  into  their  heads  that  "Surplus"  represents 
actual  Cash. 

Dividends. 

Now  the  gains  appear  to  be  $5,000.00.  What  per  cent,  if  any,  of 
that  amount  shall  be  paid  in  the  shape  of  Dividends  ?  In  determining 
this  question,  there  are  several  important  points  to  be  considered. 
First,  what  are  the  available  Assets,  and  what  are  the  Liabilities  that 
must  be  discharged  f  What  contemplated  improvements,  machinery,  etc., 
to  be  provided  for,  and  how  much  Cash  is  there  on  handf  It  is  true, 
the  Net  Gain  is  shown  to  be  $5,000.00,  yet  there  may  be  no  Cash  on 
hand.  The  balance  of  all  expense  accounts  and  losses  having  been 
closed  into  "Profit  and  Loss"  account,  it  necessarily  follows  that  the 
Cash,  that  should  represent  the  Net  Gain,  has  nearly  all  been  ex- 
pended in  veritable  assets.  If  by  this  reason  there  is  no  Cash  on 
Hand,  or  if  there  is  Cash  on  Hand  and  the  interests  of  the  Company 
need  it  in  another  direction,  no  well-managed  Company  would  declare 
Dividends.  Should,  however,  the  Company  see  proper  to  depend 
upon  early  Maturities  due  them,  they  may  with  propriety  borrow 
money  to  pay  Dividends. 

But  it  may  happen,  as  in  this  instance,  a  large  amount  of  money 
has  been  received  from  the  sale  of  Stock.  Consequently  there  is  Cash 
on  Hand  for  which  ther&  is  no  immediate  use,  whereupon  the  Board 
of  Directors  agree  upon  a  twenty-five  per  cent.  Dividend  on  the  Net 
Gain  of  $5,000.00. 


BOOKS  OF  JOINT  STOCK  COMPANIES.  13 

Journal  Entry.— Example  7. 

Surplus, 61,250.00 

To  Dividend  No.  1,  1884,    .        .        .       $1,250.00 

For  amount  of  twenty-five  per  cent.  Dividend 
on  $5,000.00  Net  Gain,  declared  by  order  of 
the  Board  of  Directors,  for  the  quarter  end- 
ing March  31,  1884,  at  the  sixth  regular  meet- 
ing AprU  2,  1884. 

Debit  "Surplus"  and  credit  "Dividend  No.  1,  1884."  As  the 
Stockholders  receive  their  Dividends,  take  their  receipt  in  a  book 
provided  for  that  purpose.  Credit  "  Cash  "  and  debit  "  Dividend  No. 
1,  1884."  When  the  Dividends  have  all  been  paid,  foot  the  account. 
Otherwise,  if  they  have  not  all  been  paid,  the  account  remains  open 
until  all  Dividends  are  paid. 

Do  not  make  one  Dividend  account  a  general  reservoir  for  all  the 
Dividends.  Open  a  new  account  for  each  quarter's  Dividend  declared. 
Number  them  in  regular  order  and  the  year,  such  as  No.  2,  1884,  No. 
16,  1885,  and  so  on.  If  a  short  corporation,  group  as  many  as  con- 
venient on  one  page,  or  reserve  the  space  for  short  accounts  in  the  back 
of  the  Ledger.  The  accounts  under  this  arrangement  will  prove  con- 
venient for  those  who  have  the  right  to  inspect  the  books.  Where 
there  are  a  great  number  of  shareholders,  your  own  judgment  wiU 
teach  you  what  other  provision  should  be  made.  After  a  Dividend 
has  been  declared,  and  the  Stockholders  so  notified,  it  becomes  a  positive 
Liability. 

Stock   Ledger. 

In  ordering  the  Stock  Ledger,  have  it  constructed  with  a  few 
Ledger  ruled  pages  in  the  fore  part,  upon  one  of  which  open  an  ac- 
count with  Capital  Stock.  Debit  that  with  all  the  installments  paid 
and  credit  Stockholders'  account  with  the  same.  This  will  leave  the 
Capital  Stock  account  in  a  condition  to  show  at  any  time  how  much 
Cash  has  actually  been  paid  in.  All  that  is  necessary  afler  an  incor- 
porator or  any  person  who  has  subscribed  for  Stock  and  paid  a  certain 
sum  thereon,  is  to  issue  them  their  Stock.  Then  open  an  account 
with  each  in  this  Ledger.  Credit  them  as  follows  :  Date  and  number 
of  certificate  and  the  number  of  shares  thereon  (no  value).  When  Mr. 
Brown  pays,  or  if  he  has  already  paid  any  thing  in  the  shape  of  an 


14 


CARNES'  MANUAL  FOR  OPENING  AND  CLOSING 


installment,  credit  his  account  '^  By  Installment  No.  1,  10  per  cent., 
$300.00."  Then  debit  Capital  Stock  account  opened  in  the  first  part 
of  this  Ledger  for  the  same.  This  method  will  keep  the  Stock  Ledger 
in  balance,  and  if  it  should  be  desired  to  learn  who  is  and  who  is  not 
delinquent  in  their  payments,  a  reference  to  this  Ledger  will  serve 
you  as  well  as  if  you  had  an  account  opened  with  each  Stockholder 
in  the  General  Ledger,  whilst  the  Subscription  Book  and. the  Capital 
Stock  account  in  the  General  Ledger  will  show  how  many  shares  have 
been  issued. 

When  a  Stockholder  actually  transfers  all  or  any  portion  of  his 
Stock,  the  original  Certificate  should  be  returned  to  the  Company. 
Paste  the  old  Certificate  to  the  stub  from  which  it  was  first  detached, 
stamp  the  old  Certificate  across  the  face,  "  Cancelled  March  31, 1884." 
note  upon  the  stub  to  whom  the  transfer  was  made,  and  issue  a  new 
Certificate  for  the  shares  so  transferred.  Should  only  part  of  the 
shares  named  on  the  old  Certificate  be  transferred,  issue  a  new  Cer- 
tificate to  the  original  owner  for  the  number  he  retains,  noting  on  the 
old  stub,  "  Renewed  by  No.  27,"  and  on  the  stub  of  the  new  issue 
note,  "  For  No.  1,  cancelled."  Then  debit  his  account  in  the  Stock 
Ledger  as  follows : 

Example  8. 


Dr. 

Cr. 

DATE. 

CERTIFICATES. 

CD 

1' 

DATE. 

CERTIFICATES. 

46 
20 

a  ta 

Mrh 

16 
(t 

Renewed  by  No.  27. 
Transf.  to  J.  Brown. 

20 
26 

Jan. 

1 

No.  1 

<c 

No.  27 

Mch. 

16 

Now  recredit  his  account  for  the  new  shares  issued  to  him  as 
shown,  then  open  an  account  with  the  party  to  whom  the  transfer  was 
made,  and  credit  his  account  for  the  new  shares  issued  to  him.  Post- 
ings into  the  Stock  Ledger  are  made  from  the  stub  of  the  Certificate 
of  Stock  Book.  The  buyer  or  seller  of  stock  must,  before  the  transfer  is 
made,  pay  for  all  unpaid  installments  or  assessments. 

Certificates  of  Stock  have  printed  on  the  reverse  side  a  "  Transfer 
Form,"  but  this  does  not  prove  convenient  in  cases  where  the  party 
desires  to  sell  only  a  portion  of  the  stock  named  upon  the  certificate, 


BOOKS  OF  JOINT  STOCK  COMPANIES.  15 

and  sometimes  fractions  of  stock  are  both  sold  and  transferred  from 
the  original.  Neither  is  it  absolutely  essential  to  use  a  transfer  book, 
entries  made  on  the  stub  of  the  Certificate  Stock  book  by  the  proper 
officer,  as  I  have  shown,  being  all  that  is  necessary. 

But  should  you  open  the  books  by  debiting  Stockholders  and  credit- 
ing Capital  Stock  Account  for  installments  due,  or  debit  Cash  for 
installments  paid  and  credit  Capital  Stock  Account  for  the  same  from 
the  Cash  book  direct  to  the  main  Ledger,  then  you  must  change  the 
order  of  the  Capital  Stock  Account  in  the  Stock  Ledger,  that  is  to 
say,  charge  that  account  with  the  par  value  of  the  shares  issued,  and 
credit  each  Shareholder  for  the  same.  The  Stock  Ledger  will  then  show 
the  amount  of  stock  issued,  while  the  Capital  Stock  Account  in  the  main 
Ledger  will  show  how  much  has  been  paid  in,  but  this,  I  contend,  is 
improper,  the  amount  of  stock  issued  is  a  part  of  the  business  of  the 
Company,  hence,  its  face  value  should  be  credited  in  the  main  Ledger ; 
and  I  prefer  using  fictitious  accounts  when  necessary  for  that  purpose. 


16  CARNES'  MANUAL  FOR  OPENING  AND  CLOSING 


PROPOSITION     II. 

Organization  of  a  Joint  Stock  Company.— Capital  $100,000.00— 
1,000  Shares,  Par  Value  $100.— Majority  of  Stock  Divided 
among  the  Incorporators,  they  to  Pay  $10  Per  Share,  Bal- 
ance of  Stock  Reserved  for  Working  or  Operating  Capital.— 
Company  Contract  to  Pay  for  Machinery  or  Real  Estate,  Part 
in  Cash  and  Part  in  Stock.— Money  Borrowed  to  Pay  Divi- 
dends.—Dividends  Declared  and  Paid  in  Stock. 

Journal  Entry.— Example  9. 
Franchise  To  Sundries,        -        $100,000.00 

For  amount  of  the  nominal  value  of  the 
Franchise  of  the  Star  Rolling  Mills  Com- 
pany, with  all  rights,  titles,  claims,  and 
privileges,  organized  upon  the  basis  of 
$100,000.00  Capital  Stock,  divided  into  1,000 
shares  of  the  nominal  par  value  of  |100  each. 

To  Capital  Stock,      ....        $60,000.00 

For  amount  of  six  hundred  Shares  of  the  par 
value  of  $100,  divided  among  the  Incor- 
porators and  Associates  at  $10  per  share 
(subject  to  additional  assessment),  as  follows: 


A.  J.  Games,    .      . 

300  shares. 

W.  Small,       .      .      . 

100      " 

J.  Adams, 

50      " 

James  Otis,     .      .      . 

50      '' 

Silas  Wright,    .     .     . 

100      '' 

600      *' 
as  per  Stock  Ledger. 

To  Working  Capital,        .        .        .        $40,000.00 

For  amount  of  four  hundred  Shares  of  the 
Capital  Stock,,  reserved  to  be  sold,  the  pro- 
ceeds to  be  applied  for  operating  purposes. 

Debit  Franchise,  credit  Capital  Stock,  and  credit  Working  Capital. 
The  incorporators  have,  in  the  above  case,  received  $60,000.00  worth 
of  stock,  even  though  they  should  never  be  called  upon  to  pay  any 


BOOKS  OF  JOINT  STOCK  COMPANIES.  17 

thing  additional  to  the  SIO  per  share.    The  Capital  Stock,  nevertheless, 
is  nominally  paid  up  to  the  extent  of  660,000.00. 
(Now  call  the  agreed  ten  per  cent.) 

Journal  Entry. — Example  io. 

Sundries  To  Installment  No.  1  {or  Assessment  No.  1),  $6,000. 
A.  J.  Games,  his  10%  on  300  shares,       .         .       $3,000.00 
W.  Small,      his  10%  on  100  shares,  .  1,000.00 

J.  Adams,      his  10%  on    50  shares,       .         .  500.00 

James  Otis,     his  10%  on    50  shares,  .  500.00 

Silas  Wright,  his  10%  on  100  shares,       .        .         1,000.00 

For  amount  of  first  installment  of  ten  per 
cent,  called  on  600  Shares  of  the  Capital 
Stock,  issued  to  the  above  incorporators  and 
associates,  as  per  agreement. 

When  they  pay  their  ten  per  cent.,  credit  off  their  accounts,  then 
issue  them  their  stock.  (See  Stock  Ledger).  Carry  Installment  No.  1 
as  a  liability  account,  and  number  the  installments  or  assessments  in 
regular  order.  Now  suppose,  as  is  done  by  some  book-keepers,  the 
books  were  opened  as  shown  by  the  latter  example — Stockholders  in- 
dividually debited,  and  "Capital  Stock"  credited,  after  which  no  more 
installments  should  be  required — they,  the  Stockholders,  would  be 
holding  stock  representing  $60,000.00  while  the  Capital  Stock  account 
would  only  be  credited  with  $6,000.00,  the  amount  paid  in.  When 
Shares  are  delivered  upon  payment  of  the  first  installment,  the  Cap- 
ital Stock  is  nominally  paid  up  to  the  nominal  par  valve  of  the  Certifi- 
cates of  Stock  iss^ued. 

MESEBVE  SMASES  80JLJD  AT  PAJt. 

Journal  Entry.— Example  ii. 

Certificates  of  Stock,        .        .        .        $1,000.00 

To  Capital  Stock,        ....        $1,000.00 
For  amount  of  ten  shares  of  Reserved  Shares 
sold  at  par. 

When  the  cash  is  received,  debit  that,  and  credit  off  Certificate 
of  Stock  Account.     This  operation  need  not  affect  the  Working  Cap- 
ital Account.     Still  carry,  or  what  remains  of,  that  account  as  a  lia- 
2 


18  CABNES'  MANUAL  FOB  OPENING  AND  CLOSING 

bility ;  or  an  entry,  " Working  Capital"  To  "Capital Stock"  could  have 
been  made.  When  the  cash  is  paid,  credit  Working  Capital  Account. 
Or  again,  in  this  case,  as  the  full  par  value  of  the  ten  shares  have 
been  paid  for  in  cash,  Cash  could  be  debited  and  Capital  Stock  credited 
without  regard  to  the  Journal,  but  I  maintain  all  transactions  affect- 
ing the  stock  should  have  their  history  upon  the  Journal,  as  I  have 
shown. 

RESERVEn   SMAMES   SOLD  BEJLOW  PAR. 

Journal  Entry.— Example  12. 

Sundries  To  Capital  Stock,       .        .        $1,000.00 

For  amount  of  ten  shares  of  the  Reserved 
Shares,  sold  at  fifty  dollars  per  share. 

A.  J.  Carnes, $500.00 

For  amount  of  ten  shares  of  the  Capital  Stock 
issued  to  him  at  fifty  per  cent,  discount  by 
order,  etc.,  etc. 

Working  Capital,       ....        $500.00 

For  amount  of  fifty  per  cent,  discount  on  ten 
Shares. 

Here  you  will  notice  stock  has  been  sold  at  a  discount,  but  Capital 
Stock  has  received  credit  for  the  full  face  value  of  the  ten  shares,  all 
the  same.    Close  his  account  from  the  Cash  book. 

RESERVED  STOCK  SOLD  AT  A  PREMIUM. 

Journal  Entry.— Example  13. 
A.  J.  Carnes  To  Sundries,        .        $1,100.00 

For  amount  of  ten  shares  of  the  Reserved 
Stock  sold  to  him  at  $1.10  per  share. 

To  Capital  Stock,        ....        $1,000.00 

Par  value  of  ten  shares. 

To  Working  Capital,  .        .        .  $100.00 

For  amount  of  ten  per  cent,  premium  received 
on  ten  Shares  of  Reserved  Shares. 

In  the  last  two  transactions  the  Reserved  Stock  has  been  sold 
both  above  and  below  par,  an  apparent  gain  and  loss.  Whilst  this 
is  so,  it  is  not  that  class  of  loss  or  gain  that  should  affect  the  legitimate 
gains  of  the  business. 


BOOKS  OF  JOINT  STOCK  COMPANIES.  19 

THE    COMPANY  NOW   CONTRACT   TO   BUY  RJEAJO  ESTATE  A.Nn  PAY 
FOB,    SAME,   PABT  IN    CASH,   AND   PABT  IN  STOCK. 

Journal  Entry.— Example  14. 

Real  Estate,  To  Sundries,       .       $10,000.00 

For  amount  of  the  value  of  Warehouse  No. 
36  East  Third  Street,  Cincinnati,  Ohio,  pur- 
chased of  John  Ing,  Jr.,  for  $10,000.00,  trans- 
ferred to  the  Company  by  him  by  Deed 
dated  July  26,  1884,  recorded  among  the 
Land  Kecords  of  Hamilton  County,  State 
of  Ohio,  Liber  226,  Folio  236,  to  be  paid  for 
part  in  Cash  and  part  in  Stock. 

To  John  Ing,  Jr.,         ....        $5,000.00 

For  balance  due  him  for  and  on  account  of 
purchase  of  Warehouse,  No.  36  East  Third 
Street,  Cincinnati,  Ohio. 

To  Capital  Stock,         ....      $5,000.00 

For  amount  of  50  shares  of  the  par  value  of 
$100,  of  the  Reserved  Stock,  transferred  to 
John  Ing,  Jr.,  in  part  payment  of  Ware- 
house, No.  36  East  Third  Street,  Cincin- 
nati, Ohio,  as  per  Stock  Ledger. 

If  a  mortgage  be  given  in  part,  it  must  take  the  place  of  John 
Ing,  Jr.,  in  the  above,  when  the  Cash  is  paid  his  account  will  close. 

MONEY  BOBBOWED    TO   PAY  DIVIBENDS. 

First  close  the  net  gain  or  loss  into  surplus. 

Journal  Entry.— Example  15. 

Cask  {Posted  from  G.B.),  .         .         $5,000.00 

To  Bills  Payable  (or  Mortgage)  .  .  $5,000.00 
For  amount  of  $5,000.00,  on  our  note  dated 
April  2,  1884,  60  days,  favor  of  and  dis- 
counted at  the  Third  National  Bank,  Cin- 
cinnati, Ohio,  to  pay  the  third  quarter's 
dividend,  ending  March  31,  1884,  by  order 
of  Board  of  Directors,  at  the  12th  regular 
meeting,  April  1,  1884. 

Now  the  following  entry: 

Surplus, $5,000.00 

To  Dividend  No.  3,  1884,    .        .        .        $5,000.00 

(History.) 


20  CABNES'  MANUAL  FOB  OPENING  AND  CLOSING 

When  the  dividends  are  paid,  that  account  will  close.  The  Cash 
received  from  the  note  could  have  been  carried  to  the  Cash  Book 
direct,  and  the  Journal  avoided  entirely.  But  borrowing  money  for 
such  purposes  is  an  important  transaction ;  its  history  should  be  given  in 
full  upon  the  Journal. 

TO   PAY  STOCK  BIVinENDS,   &c. 

Should  stock  be  sold  or  issued  to  pay  dividends  after  the  original 
incorporated  Capital  has  been  disposed  of,  the  Company  could  be 
justly  held  for  "  watering"     There  must  be  a  lawful  increase  of  stock. 

FIFTY  PFM    CENT.   DIVIJDEND  I>FCLABFJD   OJV  $5,000.00. 

Journal  Entry.— Example  i6. 
Profit  and  Loss,  To  Sundries,    .    $5,000.00. 

For  amount  of  $5,000.00  net  gain,  as  appears 
by  the  Profit  and  Loss  Account  for  the 
quarter  ending  March  31,  1884. 

To  Capital  Stock,        ....        $2,500.00 

For  amount  of  fifty  per  cent,  dividend  declared 
on  $5,000.00  net  gain,  in  payment  of  which 
25  shares  of  the  reserved  Stock  of  the 
par  value  of  $100  have  been  issued  to  the 
Stockholders,  by  order  of  the  Board  of 
Directors,  at  the  Tenth  regular  meeting, 
April  2,  1884. 

To  Surplus, $2,500.00 

For  amount  of  $2,500.00,  the  balance  of 
$5,000.00,  net  gain  for  the  quarter  ending 
March  31,  1884. 

Had  the  Profit  and  Loss  Account  shown  a  very  small  gain  or 
loss,  these  balances  should  be  closed  into  "  Surplus,"  then  another 
form  of  entry  would  be  required. 

Journal  Entry.— Example  17. 
Working  €apital,        .        .        .        .        $2,500.00 

To  Capital  Stock,        ....        $2,500.00 

For  amount  of  25  shares  of  the  nominal  par 
value  of  $100,  of  the  Reserved  Shares,  issued 
in  payment  of  a  Stock  Dividend  declared 
by  the  Board  of  Directors,  at  their  tenth 
regular  meeting,  April  2,il884. 


BOOKS  OF  JOINT  STOCK  COMPANIES.  21 


AGAI  N. 

$2,500.00  Dividend  declared  and  paid  for  with  Reserved  Stock, 
the  shares  delivered  to  the  Stockholders  at  fifty  per  cent,  discount. 

Journal  Entry.— Example  i8. 

Working  Capital,      ....      $5,000.00 

To  Capital  Stock,        ....       $5,000.00 

For  amount  of  $2,500.00  Stock  Dividend,  in 
payment  of  which  50  shares  of  the  nominal 
par  value  of  $100  of  the  Reserved  Stock  has 
been  issued  to  and  divided  among  the  Stock- 
holders at  50  per  cent,  discount,  by  order  of 
the  Board  of  Directors,  at  their  tenth  regular 
meeting,  April  2,  1884. 
Or  to  pay  a  Stock  Dividend,  make  this  entry : 

Journal  Entry.— Example  19. 

Working  Capital,      ....      $2,500.00 

To  Dividend  No.  2,  1884,         .         .         $2,500.00 

(History.) 
Then, 

Dividend  No.  2,  1884,       .        .        .      $2,500.00 

To  Capital  Stock,        ....       $2,500.00 

(History.) 


PROPOSITION    III. 

A  Commercial  Business  Incorporated  into  a  Joint  Stock  Com- 
pany upon  the  Basis  of  $400,000.00  Capital  Stock,  8,000 
Shares,  Par  Value,  $50. 

The  above  commercial  business  was  composed  of  three  partners, 
whose  combined  capital,  as  shown  by  the  books,  was  $200,000.00  of 
which  J.  Blake's  share  was  $100,000.00,  S.  Blake's  share  was  $50- 
000.00,  and  H.  Blake's  share  was  also  $50,000.00.  In  order  to  in- 
corporate, two  gentlemen,  D  and  E,  are  induced  to  join  them,  they 
each  to  subscribe  for  1,000  shares  of  the  stock,  and  to  pay  ten  per 
cent,  down,  the  balance  to  be  paid  by  installments.    The  three  origi- 


22  CARNES'  MANUAL  FOR  OPENING  AND  CLOSING 

nal  partners  agree  to  divide  the  remaining  6,000  shares  among  them- 
selves in  proportion  to  their  net  ca'pital  in  the'  old  business. 

The  Assets   and  Liabilities  of  the  old  firm  are,  (Partners  and 
worthless  accounts  thrown  oyt) : 

Merchandise,     .     .  $100,000.00  Bills  Payable,    .     .  $50,000.00 

Personal  Accounts,  55,000.00  Personal  Accounts,  50,000.00 

Bills  Receivable,  .     25,000.00  J.  Blake's  Share,    .  100,000.00 

Machinery,      .      .  60,000.00  S.Blake's      "        .  50,000.00 

Real  Estate,       .  .    60,000.00  H.  Blake's     "       .  50,000.00 


$300,000.00  $300,000.00 

From  the  above  it  will  be  seen  the  Assets  are  $300,000.00,  and 
the  Liabilities  are  $100,000.00,  forming  the  Basis  upon  which  a  Capital 
Stock  of  $400,000.00  is  to  be  created.  Under  the  agreed  division,  J. 
B.  will  have  3,000  shares,  S.  B.  will  have  1,500  shares,  H.  B.  1,500 
shares,  while  D  and  E  will  have  1,000  shares  each. 

Journal  Entry.— Example  20. 

Sundries                   To  Capital  Stock,         .        .        $400,000.00 
Franchise, $300,000.00 

For  amount  of  the  nominal  value  of  the 
Franchise  of  the  Blake  Paper  Manufactur- 
ing Company,  with  all  rights,  titles,  and 
privileges,  organized  upon  the  basis  of 
1400,000.00  Capital  Stock  divided  into  8,000 
shares  of  the  par  value  of  $50,  of  which  6,000 
shares  are  appropriated  as  follows : 

J.  Blake,      .         .        .       3,000  shares. 
S.  Blake,  .        .         '  1,500      " 

H.  Blake,    .        .        .      1,500      " 

as  per  Stock  Ledger. 

Certificates  of  Stock,      .        .        .        $100,000.00 

For  amount  of  2,000  shares,  of  the  par  value 
of  $50,  of  the  Capital  Stock  of  the  Blake 
Paper  Manufacturing  Company  (being  the 
remaining  shares  of  the  original  8,000 
shares),  issued  as  follows : 

D,  .        .        .        .        1,000  shares. 

E,  ....     1,000      " 


BOOKS  OF  JOINT  STOCK  COMPANIES.  23 


Sundries  To  Contingencies,  .  $300,000.00 

Merchandise,       .  .         $100,000.00 

Personal  Accounts,  .         55,000.00 

Bills  Receivable,  .            25,000.00 

Machinery,      .         .  .        60,000.00 

Real  Estate,        .  .            60,000.00 

For  amount  of  all  approved  property,  duly 
inventoried  and  recorded  in  Stock  Books 
July  6,  1884,  transferred  to  the  Company  by 
J.  Blake,  S.  Blake,  and  H.  Blake,  for  which 
they  have  accepted  6,000  shares  of  the  Cap- 
ital Stock  of  the  Blake  Paper  Manufactur- 
ing Company,  divided  among  themselves  as 
per  agreement  dated  July  6,  1884,  recorded 
in  this  Journal,  page  21.  (The  agreement 
entire  may  follow  this  entry). 


Ck)NTINGENCIES  To   SUNDRIES  .  $100,000.00 

To  Bills  Payable,     ....        $50,000.00 
To  Personal  Accounts,         .        .        .    $50,000.00 

For  amount  of  all  approved  Liabilities,  duly 
inventoried  and  recorded  in  Stock  Book 
July  6,  1884,  the  same  being  owing  by  J. 
Blake,  S.  Blake,  and  H.  Blake,  and  by  them 
transferred  to  the  Company,  of  which  the 
Company  has  assumed  the  payment,  by  an 
agreement  dated  July  6,  1884,  and  recorded 
in  this  Journal,  page  26. 

Debit  "Franchise,"  debit  "Certificates  of  Stocks,"  credit  "Capital 
Stock,"  debit  each  one  of  the  several  Assets,  and  credit  "  Contingen- 
cies" "By  Sundries;"  then  credit  each  of  the  several  "Liabilities," 
and  debit  "Contingencies"  "To  Sundries."  (Certificates  of  Stock 
Account  may  be  at  once  closed  by  "Installment  To  Certificate  of  Stock.") 
As  D  and  E  pay  the  agreed  installments  credit  Certificates  of  Stock 
Account,  and  debit  Cash.  Some  accountants  would  open  an  account 
with  Blake  Paper  Manufacturing  Company  in  place  of  "  Franchise." 
Of  course  you  don't  lump  each  account  as  here  shown. 


24  CARNES'  MANUAL  FOB  OPENING  AND  CLOSING 

Here  is  another  form  of  entry: 

Journal  Entry.— Example  21. 
Franchise  To  Sundries,        .       $400,000.00 

(History.) 

To  Capital  Stock,    ....        $300,000.00 
(History.) 

To  Working  Capital,*       .        .        .    $100,000.00 
(History.) 

Assets 

To  Contingencies, 
Contingencies 

To  Liabilities. 

Carry  Working  Capital  Account,  or  what  remains  of  it,  as  a  Lia- 
bility.    When  D  and  E  are  called  upon  for  their  installments,  enter 

Installment  No.  1 

To  Capital  Stock. 

(History.) 
Or 

D  AND  E  {First  Installment)^ 

To  Capital  Stock. 

(History.) 
Or  open  the  following  entries: 

Journal  Entry.— Example  22. 

Sundries  To  Sundries. 

Franchise,    .     .     .     $100,000.00        Capital  Stock,  .     .    $400,000.00 
Assets,       ....    300,000.00        Liabilities,     .     .     .     100,000.00 
D,t     .     .     .     .     .        50,000.00 
E,t 50,000.00 

See  Proposition  VIII,  Consolidations. 


*See  Proposition  II,  Example  9. 

fin  this  case,  as  installments  are  called,  Capital  Stock  can  be  credited.    This  entry  may 
be  justified  upon  the  ground  that  D  and  E  will  pay,  and  when  paid  their  accounts  will  close. 


BOOKS  OF  JOINT  STOCK  COMPANIES.  25 

Should  a  mercantile  firm,  about  to  incorporate  into  a  Joint  Stock 
Company,  comprise  enough  members  to  incorporate  under  the  law, 
and  agree  to  divide  all  the  stock  among  themselves  according  to 
their  interest  in  the  old  firm,  first  find  the  sum  of  the  total  Liabilities, 
to  which  add  the  total  sum  of  the  incorporated  Capital,  from  the  total 
sum  of  all  these  you  will  deduct  the  total  sum  of  the  new  appraised 
Assets,  the  amount  remaining  you  must  charge  to  "Franchise,"  or 
some  book-keepers  might  use  the  name  of  the  Company  instead  of 
"  Franchise  "  (I  think,  however,  the  latter  the  best  title).  Now  issue 
the  stock  to  the  partners  as  undei-stood ;  then  credit  all  in  the  Stock 
Ledger  for  the  Number  and  Face  Value  of  their  ceilificates,  and  debit 
Capital  Stock  account  in  the  same  Ledger  for  the  same. 


Street    Railways. 

Books  of  Street  Railways,  in  relation  to  the  stock  account,  can  be 
made  up  from  illustrations  shown  herein,  as  the  author  takes  for 
granted  book-keepers  know  all  the  elements  that  go  to  Profit  and 
Loss  therefore  make  no  suggestion  on  that  point,  any  more  than  to  say 
in  the  matter  of  the  Horse  and  Mule  Account,  some  roads  scale  the 
loss  of  that  property  from  60  to  as  low  as  20  per  cent.  The  manner 
of  Cash  returns  between  Conductor  and  receiver,  of  course,  is  not  a 
matter  of  book-keeping,  but  a  subject  left  to  the  ingenuity  on  part  of 
those  in  authority;  in  this  respect  the  system  inaugurated  in  the 
Receiver's  department  of  the  Baltimore  City  Passenger  Railway 
Company  is  the  best  the  author  has  seen,  and  perhaps  the  best  in  the 
country. 


26  CABNES'  MANUAL  FOB  OPENING  AND  CLOSING 


PROPOSITION     IV. 

A  commercial  business  with  $20,000.00  in  Assets  and  no  Lia- 
bilities, incorporate  into  a  Joint  Stock  Company.  — Capital, 
$50,000.00.  — Majority  of  Stock  divided  among  the  incor- 
porators. 

Journal  Entry.— Example  23. 

Sundries  To  Sundries. 

Franchise,  .  .  $30,000.00 

(History.) 

Assets,         .         .         .       $20,000.00 
(History.) 

To  Capital  Stock,    .       .        .       $40,000.00 
(Divided  among  the  incorporators.) 

To  Working  Capital,         .        .    $10,000.00 

(History.) 

Now  the  same  business  has  $20,000.00  in  speculative  Assets  and  a 
Steam  Engine  that  cost  $10,000.00  incorporated  as  above. 

Journal  Entry.— Example  24. 

Sundries  To  Sundries. 

Machinery,         .         .         $30,000.00 
(Nominal  value.) 

Assets,         .  ...  $20,000.00 

(History.) 

To  Capital  Stock,    .       .       .       $40,000.00 

(History.) 

To  Working  Capital,  .       .       .  $10,000.00 

(History.) 

The  actual  cost  of  the  Engine  was  $10,000.00 ;  but  it  is  entered 
up  at  the  nominal  value  of  $30,000.00.  To  this  there  is  no  objection, 
as  it  is  not  a  speculative  resource.  Or  charge  the  Engine  at  $10,000.00, 
and  give  the  balance,  $20,000.00  to  Franchise. 


BOOKS  OF  JOINT  STOCK  COMPANIES.  27 


PROPOSITION    V. 

A  gentleman  with  no  money  has  a  Patent  Rake.- He  finds 
several  capitalists,  who  incorporate  a  Joint  Stock  Company 
for  the  purpose  of  Manufacturing  the  Rake.— They  agree  to 
pay  the  patentee  "  Smith  "  $5,000.00  In  Stock  for  his  pat- 
ent.—Capital  Stock,  $100,000.00.-1,000  Shares,  $100  par 
value.— Each  of  the  incorporators  subscribe  for  as  many 
shares  as  they  wish. 

Journal  Entry.— Example  25. 

Smith  Patent, $5,000.00 

To  Capital  Stock,        ....        $5,000.00 

For  amount  of  50  shares  of  Stock  of  the  nom- 
inal par  value  of  $100  of  the  Capital  Stock 
of  the  Cincinnati  Patent  Eake  Manufactur- 
ing Company,  incorporated  upon  the  basis 
of  §100,000.00  Capital,  said  50  shares  issued 
to  John  Smith  in  payment  for  all  his  right, 
title,  claim,  and  interest  in  and  to  his  Patent 
Rake,  transferred  to  the  Company  by  him, 
by  Deed  dated  March  2,  1884,  recorded  in 
this  Journal,  page  26.  (Embrace  a  copy  of 
the  Deed  in  this  entry.) 

Fkanchise  To  Sundries,      .    $95,000.00 

(History.) 

To  Capital  Stock,      ....        $55,000.00 
For  amount  of  550  shares  of  the  nominal  par 

value  of  $100  of  the  Capital  Stock  of  the 

Cincinnati      Patent     Rake     Manufacturing 

Company,  divided  among  the   incorporators 

as  follows : 

A,         ....         200  shares. 

B, 300      " 

C,         .         .         .         .  30      " 

D, 20      " 

As  per  Stock  Ledger. 

To  Working  Capital,        .        .        .        $40,000,00 
See  Prop.  II,  Ex.  8.     (History.) 

Debit  Smith's  Patent,  credit  Capital  Stock,  debit  Franchise,  credit 
Capital  Stock,  and  credit  Working  Capital. 


28 


CARNES'  MANUAL  FOB  OPENING  AND  CLOSING 


The  Capital  Stock  is  nominally  paid  up  to  the  extent  of  $5,000.00 
in  one  case  and  $55,000.00  in  the  other ;  after  which,  when  a  call  is 
made  upon  the  incorporators  for  money,  debit  them  collectively  or  indi- 
vidually, and  credit  Installment  or  Assessment  No.  1.  If  any  of  the 
Reserved  Shares  are  sold  to  new  buyers,  debit  Working  Capital  and 
credit  "  Capital  Stock."     (See  other  Prop.) 

The  following  will  open  the  books  for  the  same  case : 


Journal  Entry. — Example  26. 
Smith's  Patent        To        Sundries,        $100,000.00 

For  the  amount  of  the  nominal  value  of  John 
Smith's  Patent  Eake,  transferred  to  the  Cin- 
cinnati Patent  Rake  Manufacturing  Com- 
pany, by  him,  by  deed  of  Assignment,  dated 
March  2,  1884,  recorded  in  this  Journal, 
page  2.     (Copy  Deed  in  this  entry.) 

To  Capital  Stock,        .... 

For  amount  of  50  shares  of  the  nominal  par 
value  of  $100  of  the  Capital  Stock  of  the 
Cincinnati  Patent  Rake  Manufacturing  Com- 
pany, organized  upon  the  basis  of  $100,000 
Capital  Stock,  divided  into  1,000  shares. 
Said  50  shares  have  been  issued  to  .John 
Smith  for  his  Patent  Rake,  deeded  to  the 
Company  by  him  with  all  rights,  titles,  and 
claims  to  him  belonging. 

To  Capital  Stock,  .... 
For  amount  of  550  shares  of  the  nominal  par 
value  of  $100  of  the  Capital  Stock  of  the 
Cincinnati  Patent  Rake  Manufacturing  Com- 
pany, divided  among  the  incorporators  as 
follows : 


A, 
B, 
C, 
D, 


200  shares, 

300  " 
30  " 
20      "■ 


As  per  Stock  Ledger. 

To  Working  Capital, 
See  Prop.  II,  Ex.  9.     (History,) 


$5,000.00 


$55,000.00 


$40,000.00 


In   the  two   preceding   series   of  entries,   "Smith's   Patent"  is 
charged  in  one  case  $5,000.00,  the  apparent  cost,  while  in  the  other  it 


BOOKS  OF  JOINT  STOCK  COMPANIES.  29 

is  charged  $100,000.00.  This  latter  rate  is  only  a  nominal  value 
given,  and  can  have  no  effect.  The  company  can,  without  violation, 
rate  its  value  as  it  chooses.  It  must  not  be  understood  by  this  that  a 
company  can  place  nominal  values  on  the  Speculative  Resources, 
Expense  Accounts,  or  Positive  Liabilities ;  but  in  opening  the  books 
a  nominal  value  maybe  given  to  such  properties  as  "Mine,"  "Ma- 
chinery," "Land,"  "Steamboat,"  "Franchise,"  either  to  increase  or 
decrease,  without  being  at  fault. 


PROPOSITION     VI. 

An  owner  of  a  piece  of  land  meets  with  a  party  of  gentlemen, 
who  agree  to  pay  him  $10,000  to  donate  the  land  for  the 
purpose  of  incorporating  a  Joint  Stock  Company.— The  land 
is  supposed  to  contain  minerals,  and  it  is  for  the  Purpose 
of  developing  the  supposed  product  the  Company  is  formed. 
The  incorporators  (of  which  body  it  is  agreed  the  owner  is  to 
be  one)  are  to  divide  the  controlling  shares  among  them- 
selves, the  balance  of  shares  to  be  sold  for  operating  pur- 
poses.—Capital,  $100,000.00,  1,000  shares,  $100  each. 

Journal  Entry.— Example  27. 
Land  Account        To        Sundries,      .        .        .        $100,000.00 

For  the  appraised  value  of  600  acres  of  land, 
located  in  Hamilton  County,  State  of  Ohio, 
donated  to  the  Miami  Iron  and  Steel  Manu- 
facturing Company  by  A.  J.  Carnes,  to- 
gether with  all  his  rights,  titles,  claims,  and 
privileges,  as  per  Deed  dated  March  22, 1883, 
said  Company  incorporated  upon  the  basis 
of  $100,000.^0  Capital  Stock  divided  into 
1,000  shares  of  the  nominal  par  value  of 
$100  each. 

To  Capital  Stock,        ....      $60,000.00 
(Amount  divided  among  incorporators,  etc.) 

To  Working  Capital,        .        .        .        $40,000.00 

(History.) 

The  title  of  "Land  Account"  could  be  changed  to  "Mine  Ac- 
count," "Franchise  Acco^mt,"  "Keal  Estate  Account,"  or  "Plant 
Account,"  followed  by  the  same  history  already  applied  to  Land 
Account.  For  treatment  of  Working  Capital  Account  see  other 
Propositions. 


30  OAENES'  MANUAL  FOR  OPENING  AND  CLOSING 


PROPOSITION    VII. 

Now  upon  another  plan. -We  will  suppose  the  $10,000  paid  is 
not  to  go  to  the  owners'  own  individual  use,  but  is  to  be  ap- 
plied to  operate  the  Company,  for  which  he,  the  owner,  is 
to  be  one  of  the  incorporators  and  is  also  to  receive  the 
majority  of  Stock  (501  shares),  and  the  other  associates  to 
receive  a  certain  agreed  number  of  shares,  to  be  divided 
among  themselves. 

Journal  Entry.— Example  28. 
Sundries  To  Sundries. 

Franchise, $90,000.00 

For  the  nominal  value  of  the  Franchise,  etc. 
Investment,        .        .         .        .  •      .         .     $10,000.00 
For  the  amount  of  $10,000.00  contributed  to 
the     Company    by    the    incorporators    and 
associates,  etc. 

To  Capital  Stock,      ....       $60,000.00 

Shares  divided  among  the  incorporators,  etc. 

To  Working  Capital,    ....    $40,000.00 

(History.) 

Now  carry  the  $10,000.00  to  the  Cash  Book,  and  enter  "  To  In- 
vestment When  that  is  posted,  "Investment  Account"  will  be 
closed.  The  preceding  Propositions  will  furnish  the  history  to  entries 
where  none  are  given.  " Contingencies "  may  be  substituted  for  "In- 
vestment." 


PROPOSITION     VIII. 

CONSOLIDATIONS. 

Consolidation  of  tlie  B.  B.  &  C.  L.  and  the  Tuscaloosa  Narrow 
Gauge  Railways. 

Condition  of  affairs  have  compelled  these  two  Roads  to  consoli- 
date. Both  are  burdened  with  a  large  floating  debt,  upon  which 
interest  is  due  and   unpaid.      The  Stock  of  both  is  "way  down," 


BOOKS  OF  JOINT  STOCK  COMPANIES.  31 

so  to  speak,  and  is  worth  nothing.  In  round  numbers,  $4,000,000.00 
worth  of  the  Stock  of  each  of  these  Companies  is  held  by  clamorous 
holders. 

The  proposed  Company  to  be  incorporated  out  of  the  above  two 
Companies  agree  not  to  repudiate  this  old  Stock,  but  to  receive  it  at 
its  par  value  in  exchange  for  new  Stock.  The  floating  debt  of  each 
of  the  old  corporations,  as  well  as  all  interest  due  thereon,  is  to  be 
assumed  by  the  new  Company.  The  Capital  Stock  of  the  latter  is  to 
be  $12,000,000.00,  divided  into  120,000  shares  of  the  nominal  par 
value  of  $100,  of  which  80,000  shares  will  be  required  to  take  up  the 
old  Stock,  leaving  40,000  shares  to  be  sold  for  operating  purposes, 
and  the  new  Company  also  agree  to  issue  $1,000,000.00  worth  of  six 
per  cent,  bonds. 

First  make  up  a  sum  of  the  Assets  and  Liabilities  of  one  of  the 
old  Companies,  including  the  old  Stock  to  be  redeemed  at  its  face 
value,  as  follows :  * 

Journal  Entry.— Example  29. 

Assets. 

Construction  and  Equipment,        .         .         .  $3,000,000.00 

Bonds  U.  S.  6s.,        .   '     .        .        .        .  60,000.00 

Interest  due  on  U.  S.  Bonds,         .         .         .  1,800.00 

B.  B.  &  C.  L.  (old  Stock),        .        .        .  4,000,000.00 

Due  from  other  Roads,          ....  25,000.00 


$7,086,800.00 


Liabilities. 

1st  Mortgage  Bonds,  1860,  outstanding,     .       .  $600,000.00 

2d          "            "       1870,           "                 .  600,000.00 

Interest  due  on  1st  Mortgage  Bonds,  1860,       .  15,000.00 

"    "   2d         "            "        1870,   .  30,000.00 

Bills  Payable, 30,000.00 

Due  to  other  Roads, 25,000.00 

Other  Indebtedness, 30,000.00 


$1,330,000.00 
In  the  same  manner  detail  and  sum  up  the  Assets  (adding  the 
face  value  of  the  old  Stock  to  be  redeemed)  and  the  Liabilities  of 
the  other  Company.     Give  each  Company's  property  a  separate  Jour- 
nal Entry,  with  a  fiill  and  complete  history  and  description  of  each 


32  CABNES'  MANUAL  FOB  OPENING  AND  CLOSING 

item  of  property ;  (same  rule  for  mercantile  firms.)  Then  take  the  total 
sum  of  the  Liabilities  of  the  two  Companies/ add  to  that  the  Capital 
Account  to  the  extent  of  $8,000,000.00  7iew  Stock  (to  be  issued  in  exchange 
for  the  Stock  of  the  old  Companies),  and  the  amount  of  $4,000,000.00 
reserved,  to  be  sold  for  operating.  From  the  total  of  all  these  you  will 
deduct  the  total  Assets,  including  the  amount  of  old  Stock  of  the  two 
Companies.  The  Balance  thus  remaining  charge  to  "  Franchise.'^  After 
this  operation  you  will  have  equal  "Assets"  and  "Liabilities,"  and 
the  work  will  be  ready  for  the  Journal  thus : 

Journal  Entry.— Example  30. 
Sundries  To  Sundries. 


1st  Go's  Assets,   .     . 
Ist  Go's  Old  Stock, 
2d  Go's  Assets,    .     . 
2d  Go's  Old  Stock,  . 
Franchise  {Balance), 


$3,086,800.00  Capital  Stock,  {Exchange 

4,000,000.00  for  Old  Stock),     .     .  $8,000,000.00 

3,000,000.00  Working  Gapital,      .     .    4,000,000.00 

4,000,000.00  1st  Go's  Liabilities,  .     .     1,330,000.00 

1,243,200.00  2d  Go's  Liabilities,    .    .    2,000,000.00 

115,330,000.00  $15,330,000.00 


Do  not  neglect  to  add  the  full  history  to  each  of  the  above  prop- 
erties. Should  the  worthless  stock  be  redeemed  at  five  per  cent.,  then 
debit  each  with  $200,000.00,  and  credit  Capital  Stock  Account  with 
$400,000.00,  after  which  apply  the  balance  of  new  stock  to  Working 
Capital  Account.  It  is  more  than  probable  the  Liabilities  of  two 
such  companies  would  exceed  their  Assets,  in  which  event  there  would 
be  a  greater  amount  to  be  charged  to  Franchise ;  or,  instead  of  creat- 
ing the  Account  of  Franchise,  take  the  balance  that  go  to  make  that 
account  and  divide  it  up,  and  increase  the .  many  different  properties 
that  go  to  make  up  the  "  Construction  and  Equipment "  Account ;  or 
one  account  may  be  increased,*  that  is  to  say,  add  one-half  of  this 
balance  to  the  value  of  the  track  of  one  Company,  the  other  half  to 
the  track  of  the  other  Company ;  this  operation  will  give  the  tracks  a 
nominal  value. 

In  the  above  operation  the  worthless  stock,  to  which  a  nominal 
value  is  given,  is  taken  to  account  as  an  Asset.  To  this  there  can  be 
no  objection.  It  is  true  the  stock  is  worthless,  yet  a  value  has  been 
given  for  it ;  hence  to  carry  it  as  an  Asset  can  do  no  violation.  It 
neither  disturbs  the  operations  of  the  Company  nor  affects  the  gains 
or  losses;  besides,  the  Company  may  require  it  upon  the  books  for 
future  reference.     This  worthless  stock  could  be  discarded  from  the 


BOOKS  OF  JOINT  STOCK  COMPANIES.  33 

books  entirely,  in  which^case  the  amount  that  goes  to  make  up  that 
account  could  be  added  to  "  Franchise,"  or  to  the  value  of  some  fixed 
property  comprising  "  Equipment  and  Construction  "  should  the  worth- 
less stock  not  be  taken  to  account;  then  the  amount  of  $8,000,000.00, 
credited  to  Capital  Stock,  must  be  followed  by  a  history  for  what  and 
to  whom  the  stock  was  issued.  The  opening  entries  here  can  be 
applied  to  opening  the  books  for  the  consolidation  of  two  or  more 
mercantile  firms. 

The  bonds  to  be  issued  are  not  a  liability  until  actually  sold  or  other- 
vrise  disposed  of,  although  I  have  seen  book-keepers,  when  bonds  were 
placed  in  the  hands  of  brokers  or  agents  to  sell,  charge  them  and  credit 
Bonds  Payable  in  the  General  Ledger.  This  is  wrong,  because  bonds 
are  not  a  liability  while  in  the  hands  of  a  broker  or  agent,  nor  can 
either  of  these  be  treated  as  debtors  while  acting  for  the  Company. 
Should  they,  however,  report  sales  and  hold  the  proceeds,  it  may  then 
be  proper  to  charge  them,  because  the  Company  becomes  responsible 
for  its  bonds  when  legitimately  sold.  As  the  bonds  are  sold  from 
time  to  time  for  cash  or  otherwise  disposed  of,  debit  that  and  credit 
Bonds  Payable. 


PROPOSITION     IX 

In  some  companies  it  may  happen  after  the  incorporators  and 
associates  have  divided  up  the  entire  stock  among  themselves,  may, 
for  certain  reasons,  conclude  to  donate  a  portion  of  their  shares,  to 
the  amount  of  say  $40,000.00,  to  the  company  for  the  purpose  of 
raising  more  funds.  In  this  case  debit  Capital  Stock,  and  open  an 
account  with  Working  Capital,  and  credit  that.  Should  any  of  the 
donated  Shares  be  sold,  debit  Cash,  and  credit  Capital  Stock  Account. 
If  these  shares  are  to  be  sold  at  a  discount,  make  the  following  entry : 

Journal  Entry.— Example  31. 
Working  Capital. 

To  Capital  Stock. 

(History.) 

The  only  further  entries  required  would  be  to  debit  each  Share- 
holder's account  in  the  Stock  Ledger  for  the  number  of  shares  donated, 


34  OARNES'  MANUAL  FOR  OPENING  AND  CLOSING 

such  as  "  Transferred  To  the  Company  20  shares."  Of  course  the  orig- 
inal certificates  will  have  to  be  returned  to  the  Company,  and  can- 
celed, and  new  shares  issued.  This  is  particularly  the  case  where  the 
original  certificates  call  for  all  the  shares  held  by  any  one  shareholder. 


Reserved    Kund 


Is  a  fund  set  aside  for  some  or  any  special  purpose,  and  should  always 
represent  actual  Cash.  The  Cash  should  be  taken  from  the  Common 
Cash,  and  have  a  separate  Bank  Account,  with  extra  Check  and  Bank 
Book. 

Journal  Entry. 
Reserved  Fund  (See  Ex.  15),        .        .        $20,000.00     ' 

To  Cash  (posted  from  C.  B.)        .        .        $20,000.00 
(History.) 

This  operation  takes  $20,000.00  from  the  Common  Cash,  and 
places  it  into  the  Reserved  Fund. 

To  purchase  Real  Estate  or  any  thing  out  of  the  Reserved  Fund, 
first  take  $10,000.00  out  of  the  Reserved  Fund,  and  replace  it  into 
the  Common  Cash  as  follows  : 

Cash  (posted  from  C.  B.),       .        .        .  $10,000.00 

To  Reserved  Fund,    ....        $10,000.00 

(History.) 
To  buy  the  property : 
Real  Estate,  .        .        .        .        .        $10,000.00 

To  John  Clark,  ....      $10,000.00 

(History.) 


BOOKS  OF  JOINT  STOCK  COMPANIES.  35 

To  pay  dividends  out  of  the  Reserved  Fund : 

Surplus, 

To  Dividend  No.  2,  1884. 
(History.) 
Then, 
Cash  {posted  from  C.  B.) 

To  Reserved  Fund. 

(History.) 

Then, 

Dividend  No.  2,  1884. 

To  Cash  (posted  from  C.  B.) 
(History.) 

The  above  Cash  Entries  might  be  omitted  from  the  Journal 
entirely;  but  I  do  not  think  it  advisable  to  do  so,  especially  when 
connected  with  important  transactions.  "  Short  Cuts  "  may  answer  in 
the  books  of  a  simple  mercantile  business;  but  in  a  Joint  Stock 
Concern  numerous  advantages  are  gained  in  giving  complete  details 
to  transactions  likely  to  be  inquired  into  at  any  time.  The  Reserved 
Fund  could  have  been  credited  direct ;  but  I  think  it  best  to  bring 
the  Cash  back  into  the  Common  Cash,  as  I  have  shown. 

A.  J.  Carnes  has  to  his  credit  the  amount  of  $4,861.72,  and  agrees 
to  take  $10,000.00  worth  of  Stock  for  his  claim. 

Journal  Entry.— Example  32. 
Sundries  To  Capital  Stock,        .        .        $10,000.00 

A.  J.  Carnes,     ......        $4,861.72 

For  amount  of  100  shares  transferred  to  him 
in  payment,  etc. 

Working  Capital, $5,138.28 

Discount  on   100  shares  transferred  to  A.  J. 
Games,  etc. 


36  CABNES'  MANUAL  FOR  OPENING  AND  CLOSING 


Balance  Shekx  No,  i. 

Drawn  off  all  the  balances  from  the  General  Ledger.  Find  the 
gross  gains  in  the  usual  way.  Before  closing  the  Sheet,  and  apart  from 
the  Ledger,  ascertain  how  much  rent,  wages,  taxes,  and  interest  not  charged 
is  due  and  unpaid  up  to  that  time.  These  amounts  you  will  add  to  the 
debit  side  of  the  Profit  and  Loss  Account,  and  credit  the  same  under  the 
head  of  Liabilities.  Then  find  how  much  rent,  interest,  etc.,  not  charged 
is  due  the  Company  and  unpaid  up  to  that  time  {these  you  will  add  to 
the  debit  of  Assets),  and  credit  the  Profit  and  Loss  Account  with  the 
same.  Now  close  the  Sheet,  and  you  will  be  nearer  the  true  gains, 
upon  which  it  would  be  safer  to  declare  Dividends.  Besides  this, 
you  would  have  a  proper  statement  of  affairs. 


Balance  Sheet  No.  a. 

But  as  you  may  not  desire,  neither  may  it  be  practicable,  to  close 
the  books  from  the  above,  draw  off  the  balances  in  the  ordinary  way 
from  the  Ledger,  without  reference  to  the  several  items  not  charged, 
and  close  the  books. 

Present  No.  1  to  each  one  of  the  Board,  with  No.  2  attached.  The 
reason  for  this  is,  should  you  offer  only  No.  1  when  you  have  closed 
your  books  from  No.  2,  you  might  find  yourself  going  through  the 
ordeal  of  trying  to  explain  to  some  one  of  the  Directors,  why  it  is  the 
balance  account  on  the  Ledger  does  not  agree  with  the  Balance  Sheet 
you  gave  him  at  the  last  "  meetin'." 


BOOKS  OF  JOINT  STOCK  COMPANIES,  37 


Miscellaneous. 

Read  all  the  preceding  'propositions  attentively;  the  intelligent 
book-keeper  will  find  sufficient  material  to  suit  his  case. 

A  subscriber  neglecting  or  refusing  to  pay  a  lawful  installment  is 
not  only  liable  to  the  law,  but  is  chargeable  with  interest  on  the 
same. 

A  stockholder  is  not  entitled  to  a  vote  if  any  of  the  calls  upon  the 
shares  held  by  him  are  in  arrears. 

To  furnish  ready  information,  each  quarterly  interest  should  have 
an  account  to  itself  in  the  Ledger  in  regular  order,  such  as  "  Coupon 
Interest,  March  31,  1884."  Do  not  make  a  general  reservoir  of  one 
account,  as  I  have  seen  some  book-keepers  do;  neither  charge  one 
quarter's  interest  for  money  paid  on  another  quarter's  interest. 

When  coupons  or  script  are  paid,  cancel  them  and  paste  in  a 
book  prepared  for  that  purpose.  By  this  operation  you  will  have  it 
easy  of  access  in  case  an  examination  is  required. 

In  a  Stock  Company  (limited)  the  shareholders  each  are  liable  to 
the  creditors  to  the  extent  of  their  shares.  To  omit  the  word  "  Limited  " 
in  a  company  of  this  character  is  unlawful  for  every  omission. 

A  company  without  the  word  "  Limited  "  affixed  is  understood  to 
be  a  full  Liability.  In  a  full  Liability  Company  a  Stockholder  indi- 
vidually is  liable  for  the  full  indebtedness  of  the  company.  Suit, 
however,  in  all  cases  must  first  be  brought  against  the  company. 

Bonds  are  not  a  Liability  until  sold  or  disposed  of,  and  not  until 
then  do  they  have  an  account  in  the  Ledger. 

When  a  company  has  organized  and  complied  with  the  terms  of 
the  law,  the  law  is  indifferent  as  to  the  amount  of  money  afterwards 
paid  in.  Neither  does  the  law  care  whether  you  sell  your  stock  for 
five  or  fifty  cents  on  the  dollar,  but  it  may  interest  itself  as  to  the 
amount  of  stock  that  is  being  issued ;  hence  the  Capital  Stock  Account, 


38  CARNES'  MANUAL  FOB  OPENING  AND  CLOSING 

as  I  have  shown,  should  receive  credit  for  the  nominal  value  of  each 
share  sold  or  otherwise  disposed  of.  That  account  is  supposed  to  show 
to  what  amount  the  stock  has  been  issued,  and  not,  as  imagined  by 
some  book-keepers,  the  amount  paid  in.  My  method  of  manipulating 
the  Stock  Ledger  will  furnish  that  information. 

In  some  short  corporations,  when  the  members  are  and  continue 
to  be  harmonious,  a  great  many  acts  are  committed  that  would  not  be 
sanctioned  by  law.  But  in  long  corporations,  or  where  there  are  a 
great  many  members,  a  strict  regard  for  all  details  should  be  closely 
observed. 

The  laws  of  all  States  require  a  certain  per  cent,  to  be  paid  in  on 
the  part  of  the  incorporators  and  associates  before  articles  of  incor- 
poration can  be  filed.  On  the  other  hand,  some  companies  are  formed 
and  go  on  and  continue  to  operate  without  regard  to  law. 

After  the  books  are  opened,  should  there  be  no  more  stock  on 
hand,  or  if  there  is  stock  on  hand  and  the  accounts  of  "  Working 
Capital,"  "Contingencies,"  "Assessments"  or  " Installments,"  should 
not  be  closed,  carry  each  as  a  proprietary  asset  or  liability. 

In  opening  the  books  first  find  how  much  stock  is  divided  among 
the  incorporators,  the  amount  of  which  must  be  credited  to  "  Capital 
Stock,"  the  balance  you  will  credit  to  "  Working  Capital,"  this  opera- 
tion gets  all  the  sold  and  unsold  stock  upon  the  Ledger.  "  Working 
Capital "  may  also  receive  credit  for  amount  prospectively  sold  for  the 
purpose  of  running  certain  transactions  through  the  books.  (See 
Proposition  III,  Example  21.) 

After  you  have  opened  the  books  for  a  consolidation,  or  for  a 
simple  partnership  incorporated  into  a  Joint  Stock  Company,  should 
it  be  discovered  an  Asset  or  a  Liability  has  been  omitted,  or  any  thing 
received  for  which  no  apparent  value  has  been  given,  use  '*  Contin- 
gencies "  as  a  balancing  medium  (some  book-keepers  use  the  name  of 
the  company)  to  get  the  omitted  transaction  upon  the  books.  The 
same  account  may  be  used  should  it  happen  that  the  company  become 
possessed  of  money  in  the  way  of  damages,  gift,  etc.  This  latter 
property,  however,  although  not  strictly  an  operating  gain,  may,  by 
mutual  consent,  be  credited  to  Profit  and  Loss  Account  for  the  pur- 


BOOKS  OF  JOINT  STOCK  COMPANIES.  39 

pose  of  dividing  it  up  into  dividends.  Should  the  money  be  designed 
for  the  Reserved  Fund,  use  "  Contingencies ; "  credit  that  and  debit 
Cash,  then  from  Cash  to  the  "  Reserved  Fund." 

All  agreements,  contracts,  and  every  thing  necessary  to  the 
formation  of  a  Joint  Stock  Company,  should  have  place  upon  the 
Journal.  Do  not  begrudge  space  or  time.  Upon  one  occasion  the 
attorney  for  a  company  compelled  me  to  enter  full  and  complete 
deeds  of  twenty-two  pieces  of  property,  that,  together  with  other 
instruments  of  writing,  covered  eighty  pages  of  a  large-size  Journal, 
from  which  I  had  only  two  postings  to  make. 

The  name  of  a  stockholder  or  subscriber  should  not  appear  upon 
the  General  Ledger  unless  he  is  a  salaried  employe,  or  buys  from,  or 
sells  to,  the  company.  This  latter,  however,  is  forbidden  by  some 
companies. 

Before  a  company  has  been  fully  organized  there  may  have  been 
more  or  less  outlay  in  the  way  of  attorney's  fees,  printing,  etc.,  on 
part  of  one  or  more  of  the  incorporators.  When  the  facts  are  pre- 
sented give  Mr.  Blank  individual  credit  for  his  outlay  (in  cash),  and 
treat  him  as  a  common  creditor,  after  which,  if  he  demands  the  amount 
he  expended  be  deducted  from  his  first  installment,  give  him  credit 
for  the  full  installment  paid,  and  "  Contra  "  charge  him  through  the 
Cash  Book  with  what  appears  to  be  to  his  credit  in  the  Ledger. 

Should  the  Company  donate  Stock  to  one  of  its  officers  for  a  cer- 
tain service  performed,  or  issue  Stock  for  labor  or  for  anything  of  no 
direct  value,  debit  "  Working  Capital "  and  credit  "  Capital  Stock  " 
account.  In  no  case  is  it  a  loss  that  should  be  charged  to  the  operat- 
ing expenses,  or  is  it  strictly  proper  to  charge  the  Expense  Account 
with  commissions  paid  to  a  broker  or  agent  for  selling  Stock,  while  it 
would  be  proper  to  charge  Expense  with  the  commission  paid  for  sell- 
ing the  Bonds  of  the  Company. 

Upon  one  occasion,  when  engaged  upon  the  books  of  a  large  cor- 
poration, I  discovered  a  large  amount  of  money  charged  to  "  Explora- 
tions." I  inquired  of  the  President  the  meaning  of  this  seeming 
singular  entry.  He  replied,  "  Oh,  well,  that  is  all  right ;  pass  to  the 
next."     I,  as  I  have  done  on  other  occasions,  "  passed  to  the  next." 


40  CABNES'  MANUAL  FOR  OPENING  AND  CLOSING 

In  connection  with  this  I  will  give  a  few  entries  I  have  seen  made  in 
books,  to  dispose  of  transactions,  when  money  has  been  spent  or  used 
around  legislative  bodies  and  elsewhere.  Two  or  more  of  the  incor- 
porators that  are  to  be  of  the  directory  have  been  denominated  attor- 
neys or  agents,  whom  the  Company  pay  for  extra  services,  but  really 
performed  by  some  unknown  third  party  or  parties.  This  is  "  charged 
to  Expense  Account."  Then  I  have  seen  a  certain  number  of  shares 
donated  to  the  members  who  control  the  Stock,  with  the  understand- 
ing the  Stock  was  to  be  sold  as  individual  property,  and  the  proceeds 
handed  over  to  parties  whose  names  and  transactions  dare  not  go 
upon  the  books.  Sometimes  the  stock  is  held  and  the  Dividends  paid 
to  unknown  parties.  Then  I  have  seen  where  Stock  has  been  donated 
to  parties  whose  habitations  are  at  the  bottom  of  the  ocean. 

Incorporators  naturally  look  out  for  themselves.  In  a  long  cor- 
poration they  secure  the  majority  of  Stock,  either  prearranged  or  by 
privilege  of  having  the  first  offer.  In  a  company  moderately  or  fully 
successful,  the  profits  may  be  absorbed  in  paying  the  salaries  of  its 
ofiScers.  The  small  holders  may  grumble  at  no  dividends  ;  but  as  the 
Company  does  not  agree  to  take  back  the  Stock  in  case  of  failure  to 
pay  dividends,  why  all  you  can  do  is  to  grumble,  although  the  laws 
in  some  States  interfere,  and  forbid  Stockholders  voting  themselves 
sinecure  places,  thus  exhausting  the  profits  in  drawing  the  large  sala- 
ries attached  to  their  positions.  A  few  far-seeing  capitalists  generally 
get  possession  of  a  valuable  Franchise,  and  capitalize  a  Company  and 
divide  the  Stock  among  themselves.  This  is  termed  a  Close  or  a 
Short  Corporation,  In  a  Company  of  this  kind  the  Stock  is  always  at 
or  above  par,  with  any  of  it  seldom  upon  the  market.  A  company  that 
absorbs  its  profits  to  pay  salaries  is  generally  a  company  carried  on 
"  on  paper."  It  is  lawful  and  proper  for  incorporators,  who  supply 
the  Assets  of  a  tangible  nature  for  the  formation  of  a  company,  to 
allot  themselves  as  many  shares  as  they  choose,  reserving  a  certain 
number  to  be  sold  for  operating  purposes.  Their  Stock,  in  common 
with  other  Stock  sold,  is  subject  to  assessment. 

There  are  book-keepers  who  object  to  so-called  fictitious  and 
nominal  accounts.  It  would  be  gratifying  to  learn  how  the  books  of 
some  companies  could  be  opened  without  their  aid.  They  object  prob- 
ably because  they  have  never  come  in  contact  with  transactions  simi- 
lar to  some  I  have  here  shown.      They  being  literally  some  of  the 


BOOKS  OF  JOINT  STOCK  COMPANIES.  41 

many  I  have  encountered  in  my  experience,  I  could  go  further  and 
give  the  basis  of  other  organizations,  but  it  would  be  useless,  because 
I  imagine  what  I  have  supplied  will,  in  the  hands  of  competent  and 
intelligent  book-keepers,  be  sufficient  to  guide  them  in  commencing 
the  books  of  all  organizations  of  peculiar  construction.  Shares  sold  at 
par  for  cash,  and  entered  into  the  Cash  Book,  and  from  there  posted 
to  the  credit  of  Capital  Stock  account,  may  be  proper  enough. 
Then  the  book-keeper  who  has  never  stepped  beyond  the  limits  of  the 
"  Cash  Basis."  may  be  led  to  argue  against  fictitious  accounts.  But 
when  you  have  Assets  of  one  sum  and  another  amount  of  incorporated 
Capital ;  sometimes  no  Assets ;  Stock  given  away  and  disposed  of  in 
various  ways,  sold  above  and  below  par ;  the  book-keeper  is  obliged  to 
adopt  a  different  method  than  that  used  in  the  simple  manipulation 
of  cash.  (See  Proposition  IV,  Examples  23  and  24.)  In  Proposition 
I,  is  a  company  that  is  to  have  a  paid-up  cash  capital.  While  I  could 
have  debited  Cash  and  credited  Capital  Stock,  and  paid  no  attention 
to  the  Journal,  I  preferred  to  introduce  the  account  of  Contingencies. 
I  do  this  mainly  for  the  purpose  of  giving  a  history  of  the  Company's 
organization,  etc.,  avoiding  the  carrying  of  an  account  of  no  value, 
but  having  the  appearance  of  a  real  debtor,  to  show  from  the  Capital 
Stock  account  the  amount  of  Stock  issued,  should  it  be  determined 
that  fifty  per  cent,  was  all  that  was  needed  to  operate  the  Company. 
Some  companies  do  not  issue  the  Stock  to  subscribers  until  all  install- 
ments are  paid.  There  is  no  objection  to  this  plan,  provided  the 
installments  are  for  a  certainty  to  be  called  within  a  fixed  limit.  But 
a  company  would  find  very  few,  if  any,  who  would  be  willing  to  pay 
for  Stock  by  installments,  and  to  wait  for  indefinite  period  before  all 
installments  would  be  called.  A  company  runs  no  risk  in  issuing  the 
Stock  upon  the  payment  of  the  first  installment,  because  a  subscriber  is 
lawfully  bound  to  pay  all  proper  demands  before  he  can  transfer  his 
Stock,  vote,  or  draw  any  Dividends  that  may  be  declared. 

Should  any  of  those  in  authority  in  a  Company  in  which  you  are 
employed  endeavor  to  induce  you  to  make  an  entry  to  cover  up  an 
unlawful  act,  do  not  let  the  loss  of  your  place  deter  your  refusal. 
Ten  thousand  times  better  to  sacrifice  your  position,  than  be  made  a 
scape-goat  or  accessory  to  a  crime.  If  you  allow  yourself  to  be  made 
a  tool  in  one  fraudulent  transaction,  you  virtually  donate  a  lien  upon 
your  honor  you  can  never  retrieve,  while  ruin  to  yourself  and  disgrace 
to  those  you  hold  most  dear  is  certain  as  death.     I  do  not  speak  of 


42  CABNES'  MANUAL. 

Joint  Stock  Companies  in  general  or  particularly;  but  I  can  recall 
many  instances  where  men  are  outcasts  and  branded  as  defaulters, 
who  have  brought  about  their  condition  in  their  efforts  to  shield  those 
who  have  long  since  deserted  them. 

Always  have  your  work  up  before  you  deposit  the  books  in  the 
safe  at  the  close  of  the  day.  By  this  rule  you  will  have  the  accounts 
of  all  who  deal  with  the  house  in  a  proper  condition  for  examination 
at  any  time,  to  the  satisfaction  of  all  concerned.  Should  it  be  your 
duty  to  be  cashier  as  well  as  book-keeper,  allow  no  one  to  meddle  with 
the  cash  drawer — that  is  your  property  until  you  have  to  make  returns. 

Be  independent,  but  not  impudent.  A  respectful  independence 
wins  the  admiration  of  all  honorable,  high-minded  men.  Take  pride 
in  your  work.  Never  grumble  about  long  hours,  or  complain  that 
your  employer  fails  to  offer  you  thanks  every  hour  in  the  day  for 
doing  what  you  have  engaged  to  do.  He  retains  your  services,  which 
is  proof  of  his  appreciation.  Do  not  be  a  tattler  or  inform  your  em- 
ployer of  every  little  twaddle  among  the  employes ;  but  go  to  him  at 
once  with  anything  calculated  to  injure  his  interest,  no  matter  who  is 
the  offender  or  what  the  penalty.  Never  speak  of  your  employer's 
peculiarities,  even  should  he  in  a  fit  of  passion  insanely  imagine  he 
alone  is  infallible.  Strictly  guard  the  secrets  you  naturally  acquire 
from  your  position.  You  should  understand  your  own  place  and 
duties,  and  endeavor  quietly,  without  intrusion,  to  understand  the 
place  and  duties  of  others.  Treat  your  customers  fairly.  Never 
deceive  them  for  the  sake  of  your  employer's  interest.  You  may 
sometimes  need  their  influence  or  financial  aid.  There  are  more  self- 
made  men  who  owe  their  success  in  life  to  friends  made  under  these 
circumstances  than  to  those  they  have  faithfully  served.  Finally  do 
not  imagine  what  you  do  not  know  about  book-keeping  is  not  worth 
knowing ;  there  are  lots  of  that  class  of  fellows. 


L,  O  J.  -I  X    \J1 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


MAIi.ie  1923 


30m-6,'14 


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